Mexico: Tax reform, real estate investment entities

The First Chamber of the Supreme Court of Justice of the Nation (Suprema Corte de Justicia de la Nación—SCJN) in 14 “amparo” actions, reviewed a constitutional question concerning a transitional provision of the 2014 tax reform related to the tax treatment of real estate investment companies (sibras).

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At issue was the effective date of a rule relating to the deferral of profit by real estate investment entities. The SCJN held in a 7 December 2016 decision that the transitional provision did not violate a principle of non-retroactivity (as enshrined in article 14 of Mexico’s Constitution). Accordingly, the high court rejected the taxpayers’ amparo actions.

Background

Under Mexico’s legal system, decisions declaring a tax law as “unconstitutional” do not have the effect of invalidating the measure. Rather, the reach of the court’s injunctive relief—amparo—is limited to those taxpayers that petitioned the court and obtained a favorable ruling. All other taxpayers must comply with the law as written—even though the law may be unconstitutional—until each taxpayer obtains an amparo and invokes the protection of the federal courts.

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